If you presently have poor credit, it’s time to take action and repair your credit score. Wouldn’t you like to know that anytime you need a loan or a credit card, you will be approved without additional documentation?
Reasons why you want to improve your credit score
1. Reduced interest rates.
Whether you are trying to get a personal loan, mortgage, car loan, credit card, or even insurance, your interest rate will be based on your credit score. Of course, loan companies reserve their best rates for clients with credit scores above 680. It used to be 650. But lately bank requirements for their A credit loans has been going up with the minimum score being 680. A low score may imply that you have not been prompt with your payments or that you may have delinquent accounts. Thus, the higher your credit rating is, the lower your interest rate would be.
2. No to security deposits.
Individuals with a poor credit are usually required to submit a security deposit to get a credit card. Not so for people with good credit. They call or walk into a store and they can have anything they can financially afford. Meaning they just verbally tell the lenders how much they make and the lenders take their word for it! They don’t ask for w9 or paystubs!
3. Easy approval or No rejections.
People with bad credit tend to have low expectations of approval. And the ones who look for credit frequently know they have to first call and explain their situation to a lender before they apply. Having bad credit usually means that you can only work with lenders who are “bad credit friendly”. And if you get approved these lenders tend to have application and processing fees.
On the other hand most people with good credit know they are getting approved before they apply. And often have high expectations from their lenders. They won’t pay application or processing fees. They just say, hey if you don’t waive these I will go to a lender who will! Wouldn’t you like to be in that position!
4. Enjoy a higher credit limit.
A low credit score restricts your options, particularly when it comes to credit limits. Most unsecured bad credit credit cards have a max credit limit of $300-$500. And remember if you want to keep your credit score high, you need to be using less than 30% of your credit. If your credit limit is $300 that means you should only use $90! Of course if you get into the habit of paying your credit card off at the end of the month, you won’t run into this problem.
While in contrast a person with good credit can call a credit card company and get approved instantly for $15,000 or more! This comes in handy when you are doing a balance transfer. If you have good credit there are many credit card companies that will give you a low interest credit card with a high credit limit so you can consolidate your higher interest cards to them. This process can save you $100s if not $1000s of dollars a year!
5. Reduced stress
Rebuilding your credit history means eliminating your debts and saving yourself from the stress of dealing with abusive debt collectors. There is nothing worse than sitting down for game night with friends and your phone rings, and guess who it is. You curse because you should have checked caller ID before you picked it up.
True story. I was in college, had friends over and got a collection call. I tried to quietly get them off the phone but everyone knew it was a debt collector. So embarrassing!
Dealing with your debts also brings peace of mind. You don’t fear the phone or the mail. You can do some real financial planning since your paycheck isn’t being garnished or fear of the day when they start to garnish your paycheck!
6. Get hired for a job.
Creditors or loan companies are not the only ones who are interested in your credit history. Employers also check credit reports before hiring personnel or promoting employees. Many big corporations feel that any high level employee should have excellent credit if they are going to be in charge of budgets or have a group of people under them. They will even choose someone with a little less experience over someone with bad credit when it comes to these executive level jobs. If you are up for a promotion and you work for one of these companies. Talk to your HR. Tell them the reason why your credit is the way it is. And make it a good reason! Saying I was young and didn’t understand the importance of paying my bills on time won’t cut it! And yes, I’ve had several business loan clients tell me that they have bad credit because their parents never taught them about credit! Or they have bad credit because their parents have bad credit. You can’t inherit bad credit! So own up to your mistakes.
7. Rent where you want.
Landlords and apartment owners also check credit history. If you have poor credit, you may not be able to rent the place you want because the landlord doubts your repayment capability. You may say to yourself this is unfair. Just because you have bad credit doesn’t mean you won’t pay your rent.
But historically, if you rent to people with bad credit, you will have some problems at some point. For the landlords peace of mind, renting to someone with a proven history of making his rent payments on time is a much better option!
8. Avoid high interest rate sub-prime lenders.
Some sub-prime lenders may try to take advantage of borrowers with bad credit by imposing unreasonable terms and charges. Why? Because they can. They justify the extra fees to cover the cost of collections. They claim that during a 4 year loan, someone with bad credit will be sent to collections at least once.
If you have good credit, you wouldn’t go to any of these lenders. You can get money from anywhere at a low rate.
9. No need for a co-signer.
It may be difficult to find a co-signer who will guarantee a loan for you. Asking someone to co-sign for you is tough. Think about. Would you like to pay for someone else’s car loan or mortgage because they can’t pay for it? When someone co-signs for you they are telling the lender if you don’t pay, they will. My mother co-signed for a family member on their mortgage. They fell behind, were on the brink of foreclosure. Not only was their credit ruined but so was my mothers. A woman who had credit in the high 700s if not in the 800s now has a 540 credit score. And a mortgage loan that is constantly late. The only way she can get off that loan is if they refinance it. And no bank will give them the loan.
10. Get approved for a business loan.
For those who dream of starting their own businesses, it can be very difficult to get a business loan with bad credit history. There are lenders out there that will approve you. We work with a lot of them for our business equipment leasing offers. But they make the following changes when they approve a bad credit equipment lease versus someone with good credit:
- Lower approval amounts. For people with good credit, we can get them approved for $50 – $100,000. While someone with bad credit usually hits a financing cap of $15-$30,000
- They require a security deposit. Some of the more aggressive lenders that will lend even with credit scores below 590 require additional collateral or a security deposit of 25% of the loan amount!
- Shorter loan terms. With good credit, you can get 48 – 72 months to pay back a loan. But with bad credit, they tend to want their money back as quickly as possible. Meaning I’ve seen approvals where the repayment is in 12 – 36 months!
